The Mechanical Licensing Collective Files Suit Against Spotify Over Unpaid Royalties (Spoiler Alert: Bundling’s the Culprit)

Mechanical Licensing Collective
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Mechanical Licensing Collective
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Photo Credit: Travis Essinger

The Mechanical Licensing Collective (MLC) has filed a lawsuit against Spotify for allegedly underpaid royalties under the compulsory mechanical blanket license — and bundling’s at the heart of it. Spotify is almost guaranteed to contest the complaint.

The sharply-worded legal action was filed in the United States District Court for the Southern District of New York, according to paperwork shared with Digital Music News late Thursday (May 16th). The action seeks recovery of unpaid royalties due under the compulsory mechanical blanket license obtained by Spotify to reproduce and distribute musical works in the United States via its consumer music streaming platform.

And, you guessed it: this is all about bundling — and Spotify’s tricky use of bundled subscription packages to score a discount on mechanical royalties.

The action states that, beginning in March 2024, Spotify asserted that its Premium Individual, Duo, and Family subscription streaming plans were now bundled subscription offerings because those plans now include access to audiobooks. Applying the rate formula applicable to bundled subscription offerings results in a reduction to the service provider revenue that Spotify reports—which results in an underpayment of royalties according to the MLC (and, NMPA, AIMP, and other aligned organizations).

The MLC takes the position that Spotify’s new bundled plans do not comply with applicable law and regulations.

The MLC has a statutory authority to address Spotify’s non-compliance with its royalty payment obligations. That’s why the MLC is taking legal action to enforce these obligations and ensure that Spotify pays all royalties due from the use of songs on Premium plans.

“The MLC was designated by the Register of Copyrights to administer the blanket license and is the only entity with the statutory mandate to collect and distribute blanket license royalties and take legal action to enforce royalty payment obligations,” adds MLC CEO Kris Ahrend. “The MLC takes seriously its legal responsibility to take action on behalf of our Members when we believe usage reporting and royalty payments are materially incorrect.”

The organization seeks corrected usage reporting and associated unpaid royalties for periods dating back to March 2024, along with an order requiring compliance going forward. The MLC is responsible for administering the blanket compulsory license for the use of musical works by digital services.

Since January 2021, the MLC has achieved total royalties distributed of more than $2 billion—at no cost to songwriters and music publishers.